Comer says pension systems need 'more transparency,' funding and experienced board members
07/31/2014 03:18 PM
MURRAY — Kentucky will have to infuse more tax dollars into its main public employee retirement system but, at the same time, should require the fund to disclose much more than it currently does, Agriculture Commissioner James Comer said Thursday.
Comer, speaking to the Murray Rotary Club Thursday afternoon ahead of his appearance at this weekend’s Fancy Farm Picnic-related events, is expected to announce this weekend his intentions about running in next year’s Republican primary for governor.
But the first question he got from Murray’s business and civic leaders on Thursday wasn’t about politics or the agriculture issues Comer outlined in his 20-minute speech. It was about what to do with the Kentucky Retirement System that has just 23 percent of the assets needed to cover obligations to current and future retirees from the state, county, city and quasi-governmental ranks that are part of the system.
Comer told the 100 people who packed into Pagliai’s Restaurant that a combination of benefits that are “too generous” and years of underfunding by past governors and legislatures, of which he was a member for 11 years, has crippled the system. But he said the benefit levels to existing employees and retirees shouldn’t be altered.
“This is something that’s been promised to hardworking state employees. You can’t undo it. There’s an inviolable contract that can’t be broken. So the state’s obligated to pay it. And we’ve got to make sure that everybody’s on the same page — that everything’s transparent with the respect to how they’re run and that the people running the retirement system have financial backgrounds. And some of them do not.”
Call for new requirements
In an interview after the speech, Comer said he wants to see more requirements for board members to have financial experience and specifically with investments.
On the 13-member Kentucky Retirement System board of trustees , only board chairman Thomas Elliott boasts a resume that contains investment experience, although board vice chairman Daniel Bauer has a phD in business and is dean of Bellarmine University’s business college.
Along with that new requirement should be a strengthening the code of ethics to further guard against conflicts of interest. Current trustee applications require prospective board members to list whether they work for or have fiduciary responsibilities with a company that does business with the retirement system.
And Comer said the Kentucky Retirement System should disclose online all its expenses and fees to make sure that money isn’t wasted, such as with payments to so-called placement agents. The retirement system paid millions to firms serving as middle men for investments, although that stopped in the wake of media reports and a state audit in 2011.
“The best way to operate the pension systems is to do so through the light of day through transparency. And you can say no more placement agents, but there’s always some type of loophole that can be found by people who are not wanting to operate above board,” Comer told cn|2. “They need to post every single penny that they spend online.”
Call for more money
The Kentucky Retirement System has an unfunded liability of more than $17.6 billion dollars — nearly the amount of Kentucky’s two-year budget.
Without altering the pension checks to current workers and retirees, the only way to dig out of the hole, Comer said, is to put more state money into the system. Others, such as Republican Sen. Damon Thayer, have said that reforms the General Assembly passed two years ago should help the state dig out of that hole in the next two decades.
“Senate Bill 2 that passed a few years ago put a BandAid on the problem. It did not fix the problem. It just put a BandAid on it and stopped the gushing of blood,” Comer told the Rotary Club.
And compounding it all is the fact that the Kentucky Retirement System leaders can’t invest strategically.
“Some people say, ‘Well, the pension system is not getting the return on investment that other systems do.’ That’s right. And there’s no way it’s going to because it’s so underfunded,” Comer said. He added that the system is handcuffed in its investment strategies to free up enough money to make its payments to retirees instead of making the long-term investments that could bring in the most capital.
Comer said he’s concerned that the system has had to put so much of its investments into bonds as opposed to stocks.
“Bonds are pretty stable but when interest rates go up, bonds go down. And I think everyone would agree interest rates are fixing to go up,” Comer said.
All that means lawmakers and candidates for governor — of which Comer could be one — need to thoroughly debate how to keep the system afloat.
“We’ve got to face the fact: There ain’t going to be a retirement system in a few years if some money isn’t infused into it,” Comer said.
(Ryan Alessi is a contributor to cn|2’s Pure Politics.)
Below the Fold
Sen. Ernst calls for more counter-terrorism efforts in Philippines, whose president intends to end U.S. relations
State hopes to raise awareness, educate public on prescription drug abuse and proper disposal with new partnership
Subscribe and get the latest political intelligence delivered to your inbox.